Polycentric Defense

Economic discussions of defense typically focus on the provision of security at the national level against external threats. Taking “the nation” as the relevant unit of analysis, economists model defense as a good that is jointly consumed, nonexcludable, and nonrival over a significant geographic space. This assumption leads to the conclusion that defense cannot be sufficiently provided privately due to freeriding issues and therefore must be supplied by a national government. What if, however, we shift our focus from “the nation” as the relevant unit of analysis of defense provision to more narrow and nuanced units? The purpose of this paper is to answer this question. The orthodox treatment of defense as a pure public good that must be provided by a centralized state suffers from three key issues.

First, it neglects the reality that many threats and therefore the defense against these threats do not affect everyone in a nation. For example, foreign invasions often target a specific area within a country. When Russia invaded and annexed the Crimean Peninsula, for instance, the Russian government was not threatening to conquer all of Ukraine. As another example, consider that terrorist acts are typically highly local in nature. If, for instance, a major city within a nation is the target of a dirty-bomb threat, it is inappropriate from the standpoint of economic analysis to treat this threat as affecting “the nation” as a whole. This is not to deny that there could be threats that affect all members of a nation. It is instead to recognize that in practice most threats have externalities that are localized relative to the nation a whole. A full appreciation of defense, therefore, requires moving beyond “the nation” as the default unit of analysis.

Second, the orthodox treatment of defense overlooks the incompleteness of the state provision of defense, which is the result of several dynamics. One is that state efforts suffer from the well-known preference-revelation problem of determining the optimal quality and quantity of public goods. In addition, the state provision of defense suffers from a range of public-choice issues—for example, rent seeking, rent extraction, bureaucratic dysfunctions—that make the provision of security highly imperfect in practice (see Coyne and Hall 2019). Moreover, in many instances states are simply incapable of providing defense to citizens due to inadequate capacity or perverse incentives. In the face of incomplete provision of security by centralized nation-states, there is an important role for a variety of actors to play in supplying defense.

Finally, the orthodox treatment of defense assumes that the state providing defense is purely protective, meaning it does not violate the rights of its citizens. In reality, however, the state can and does use its powers to threaten the well-being of the citizens it is tasked with defending (see Coyne 2015). Under this scenario, the domestic state is an internal threat to citizens. The orthodox treatment of defense treats all threats as external and assumes away the paradox of government fundamental to constitutional political economy. As such, it has limited explanatory power in scenarios where these conditions do not hold and where people face genuine internal threats from state power.

We address these issues by moving institutional context to the foreground. Rather than assuming that defense is in all instances a public good for the nation, we argue that the specific nature of the good depends on its institutional context. Goods that are considered part of defense are often associated with diverse scales of externalities. These goods can, therefore, be produced by diverse centers of decision making that operate at multiple scales rather than simply by a monocentric nation-state. Indeed, in practice, defense-related